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Session 2: Introduction to the basic gravity model

1 Dr. Witada Anukoonwattaka Trade and Investment Division, ESCAP ARTNeT- GIZ Capacity Building Workshop on Introduction to gravity Modelling: 19-21 April 2016, Ulaanbaatar Session 2: Introduction to the basic gravity model 2 Introduction gravity model is a very popular econometric model in international trade Origins with Tinbergen (1962). Thousands of published articles and working papers since then. Some of the clearest and most robust findings in empirical economics. (Leamer & Levinsohn, 1995) The name came from its utilizing the gravitational force concept as an analogy to explain the volume of bilateral trade flows Initially, it was not based on theoretical model , but just intuition only Later on, a range of rigorous theoretical foundation has been given. 3 Introduction gravity s main comparative advantage lies in its ability to use real data to assess the sensitivity of trade flows with respect to policy factors we are interested in.

–Tariffs and non-tariff barriers. –Regional integration agreements, currency unions, and the –GATT/WTO. –Time delays at export/import and trade facilitation. –Governance, corruption, and contract enforcement.

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